PHL inflation expected to ease further on decline in rice prices

HEADLINE INFLATION is expected to ease further due to the decline in rice prices, ANZ Research said.

“Inflation is set to ease materially over the coming months as the reduced tariffs on rice imports soften food inflation and lower crude oil prices bring down transport inflation,” it said in its Asia Economic Outlook.

ANZ Research said it expects inflation to average 3.4% this year, in line with the Bangko Sentral ng Pilipinas’ (BSP) full-year forecast.

Inflation likely eased to 2.5% in September, based on the median estimate in a BusinessWorld poll of 15 analysts conducted last week. If realized, this would be sharply lower than the 3.3% posted in August and the 6.1% year-earlier reading.

This would also be the lowest monthly result in nearly four years or since the 2.3% reading in October 2020.

The Philippine Statistics Authority (PSA) is scheduled to release September inflation data on Friday, Oct. 4.

ANZ Research noted that easing rice prices will be the primary factor behind the downtrend in inflation, largely due to the tariff cut on rice imports.

In June, President Ferdinand R. Marcos, Jr. slashed tariffs on rice imports to 15% from 35% until 2028.

The PSA has reported that the rice component of inflation eased to 14.7% in August from 20.9% in July.

“Furthermore, lower crude oil prices have also helped ease transport inflation in recent months. Given slowing global demand, crude oil prices are expected to remain subdued in the coming quarters,” ANZ Research said.

“Moreover, rice production in the major rice-exporting countries (India, Vietnam and Pakistan) has turned up amid favorable rainfall on account of the La Niña weather pattern. This will increase the supply of rice in the global market and help lower rice prices.”

ANZ Research said that elevated inflation has “led to increased cost of living for consumers and hindered private consumption growth, while also depleting household savings.”

Household consumption, which accounts for over 70% of the economy, rose 4.6% in the second quarter, against the 5.5% growth from a year earlier.

“This is far below the pre-pandemic five-year annual average growth rate of 6.2%. The slow growth was mainly due to persistently high inflation since 2022 that led to a steep decline in current and future consumer confidence amid rising inflation expectations.”

“Despite softening inflation and lower interest rates, its impact on private consumption in 2024 is expected to be moderate at best,” it added.

Meanwhile, ANZ Research said that it expects the Bangko Sentral ng Pilipinas (BSP) to cut interest rates by 25 basis points (bps) in the fourth quarter.

The Monetary Board’s remaining meetings this year are set for Oct. 16 and Dec. 19.

“Given the improving inflation outlook, our forecasts are in line with the BSP’s expectations. In addition, we forecast another 100 bps of rate cuts in 2025 with the terminal rate at 5.00%.”

The central bank in August cut the key rate by 25 bps to 6.25% from the over 17-year high of 6.5%.

ANZ Research also expects the reserve requirement ratio (RRR) to be cut further in the coming years.

“We expect the BSP to deliver one of the deepest rate-cutting cycles in the region and the simultaneous liquidity injection, via three 250 bps RRR cuts each in 2023, 2024 and 2025, should further support risk appetite including banks’ demand for bonds.” — Luisa Maria Jacinta C. Jocson